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Spy Revelations Are Good and Bad News for Business

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Google, Microsoft, and Yahoo are actually seeing some benefits from the latest assertions about government spying.

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Thank goodness that chatterbox Edward Snowden can't shut up.

Even while holed up in an airport terminal in Moscow, desperately seeking a new home that won't extradite him, the former National Security Agency contractor keeps blabbing about massive worldwide government snooping on Internet and telephone communications.

The good part is that he has finally gotten around to mentioning that everybody else is as guilty of snooping as the United States-including, most definitely, some of the nations whose leaders have publicly criticized America.

That ought to blunt some of the worries about the impact of his spying revelations on US business. Or will it?

Those worries start with a potential loss of trust in some US companies that have a vast global reach, and are cooperating with NSA requests for information. Among the prominent names named are Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and Yahoo (NASDAQ:YHOO).

Further, they include concerns about the fast-growing enterprise cloud computing business, which depends on a reputation for absolute security of private data.

Google, Microsoft and Apple (NASDAQ:AAPL), all names that have popped up in the NSA spy story, are on the long list of competitors for enterprise cloud computing clients. Some much younger American companies are growing with the industry, too: A new report from Forbes shows that some lesser-known names have been performing better than big tech in the cloud space so far this year.

So, some of the latest developments in the spy story must come as a relief, including the following:
  • A report in the publication Der Spiegel over the weekend revealed that the German government is cooperating with NSA data requests on a "no questions asked" basis. So much for Chancellor Angela Merkel's denunciation of the program as "Cold War tactics," not to mention her demand for an explanation from the US.
  • The source of the report in Der Spiegel was the talkative Snowden, who in fact said that "most Western states" are cooperating with the NSA, not just Germany.
So, it looked like American companies could at least argue that they were no more or less vulnerable to government snooping demands than any others. At least, that was the case until Sunday.

That was the day the Washington Post published a report, based on "top-secret documents," alleging that the US and British governments have "direct access" to servers operated by Microsoft, Google, Yahoo, and Facebook through a program called PRISM. AOL (NYSE:AOL) and privately-owned PalTalk also were named in the report.

The distinction is crucial. The companies have acknowledged complying with specific requests for information. Google even has a public "Transparency Report" that tracks the numbers on user data requests.

But the companies have flatly denied permitting server access to the US government, or anyone else. Google has posted a new denial, and executives of other tech companies named in the Post story followed in an article published in the British newspaper The Guardian.

The denials have the proper note of indignation-more than one said they had never even heard of any program called PRISM.

Suspicious minds have pointed out before that the companies would be prohibited from commenting about their participation, by the same secrecy laws that enable the programs to operate.

In fact, the story of the NSA spying operation is all about the potential impact on suspicious minds.

The story broke at a particularly poor time for Google and other US companies, as the European Union has begun to finalize its expected update to privacy rules related to Internet data collection.

The tech companies and their clients have expressed concerns that the new rules will place onerous restrictions on data tracking and gathering. Those practices are the commercial lifeblood on the Internet, as they're used to target and deliver advertising and direct marketing messages to the right audiences.

Behind the scenes, the threat of burdensome regulation might not be that dire.

Privacy advocate Simon Davies, who was commissioned by the EU to assess its privacy proposal, has instead posted a shockingly blunt public denunciation of the plan in its latest form. He blames intensive lobbying by US corporations, with help from the "business-friendly" British and Irish governments, for the watering down of the proposed privacy protections. It was, he concludes, "a vast stitch-up to kill the reforms."

There's even a bright side there, in a Monty Python-ish way. GigaOm speculates that all these privacy worries could create whole new industries-or at least give a boost to new ventures aimed at providing "private cloud" services.

Related articles:

This Just In: Everybody's Spying On Everybody Else

Let's Thank the NSA for Showing Us the Real Cost of Big Data

It's a Shift in Business Models, Not Innovation, That Has Shaken Up the Tech Industry
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